More Coordinated Efforts Needed to Finance Infrastructure

A forum group discussion (FGD) on infrastructure, held jointly by The Jakarta Post and PT Sarana Multi Infrastruktur (Persero) (PT SMI), unveiled a growing appeal for collective eff orts to support the financing of the desperately needed infrastructure. “Everyone is currently looking at infrastructure through their own perspectives. The government, agenciesand investors each look through theirown perspectives,” said one of the participantsrepresenting pension fund.He explained that the financialsector would be ready to help, as it isfeeling the strain of inadequate infrastructure.The FGD on infrastructure, held inJakarta on Oct.26, carried the theme“Mobilizing Investment for InfrastructureDevelopment”. It was the secondof a two-part discussion participatedby various stakeholders involved in infrastructureto identify problems andfind solutions regarding infrastructuredevelopment in Indonesia.Participants included representativesfrom the Ministry of Finance,the Financial Services Authority (OJK),state banks, private banks, securitycompanies, pension funds and insurancefirms. Indonesia needs around Rp 5,500trillion in investment for infrastructureprojects for the next five years,while the state budget can only coveraround Rp 300 trillion.Financial institutions disclosed theirwillingness to play a part in financingIndonesia’s infrastructure programs,but said investing in projects wouldnot be viable unless “there is a collectiveeffort to support it”. Their risky natures and long-termtenures are common reasons why privatefinancial institutions have beenreluctant to invest in infrastructureprojects. However, they said that “weare now ready to help”, but said theywould need collective mutual supportfrom other stakeholders. Aloysius Saragih, representative from OJK, expressed confidence that the Ministry of Finance would be happy to give incentives such as tax exemptions to private firms investing in government infrastructure projects. As for the OJK itself, he explained that the agency was prepared to temporarily take its regulatory hands off of the infrastructure financing industry, which is currently still unregulated, to encourage more players to join the game. Novi from an insurance companyhighlighted the importance of intraindustrysupport for companies tomake big decisions on infrastructure investment.Pension fund companies and insurancecompanies are seen as the mostsuitable financial institutions to purchasebonds with underlying assets ininfrastructure projects because of theirability to provide long-term funding. Banks, despite having huge assets, are generally restricted to investments with tenures of between five to 10 years and have therefore not been expected to show interest in infrastructure financing. However, in the discussion, bank representatives said that banks could play a part in infrastructure financing if they were able to team up with other financial institutions. Three state-owned lenders, Bank Mandiri, Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI), for example, recently managed to secure a loan commitment worth US$3 billion from the China Development Bank (CDB) to finance infrastructure development in Indonesia. Australia and New Zealand Banking Group (ANZ) loan syndications head Ronny said that other banks could also forge similar co-financing partnerships with the government to enable them to invest in infrastructure.  “If there is co-financing with state-ownedbanks, or with PT SMI, I thinkforeign banks in Indonesia or overseaswill be glad to contribute more to infrastructurein Indonesia,” he said. At the end of the discussion, Sonny Loho, the Director General of State Asset Management, Ministry of Finance revealed the government’s  plan to establish Indonesia Development Financing Agency (LPPI) as one of the solutions to overcome the market failure and partner for domestic and foreign financial institutionsto finance Indonesia’s infrastructuredevelopment. He also mentioned some stepsthat have been taken by Ministryof Finance in preparing the draft oflaw and strengthening the capitalof PT SMI, which can be the embryofor LPPI. Emma Sri Martini, President Director of PT SMI expressed her company readiness to fullfil the government mandate in preparing the LPPI. She said that the organization, the people and procedure shall be ready by 2017, before LPPI formally in operation.